Newmont Poised on Debt Cuts & Growth Projects Amid Cost Woes

Newmont recorded wider year-over-year loss in fourth-quarter 2017. Its adjusted earnings were in line with the Zacks Consensus Estimate while sales trailed.

The company expects attributable gold production in the range of 4.9-5.4 million ounces for 2018 and 2019 factoring in full potential mine plan, recovery improvements and throughput.

Newmont’s shares have gained 9.8% in the last three months, outperforming the industry’s 3.9% decline.

Investment in Growth Projects & Debt Reduction to Drive Results

Newmont is making notable progress with its growth projects. The company continues to invest in growth projects in a calculated manner. It is pursuing a number of projects including Subika Underground and Ahafo mill expansion in Africa and Twin Underground in North America.

In fourth-quarter 2017, Newmont successfully started commercial production at its Tanami expansion project in Australia, which is expected to improve gold production at the mine. The Subika Underground and Ahafo mill expansion projects represent additional upside. Commercial production at Subika is expected in the second half of 2018 while the same for the Ahafo expansion is expected in the second half of 2019. Commercial production from the Twin Underground expansion is also expected in mid-2018.

We are also impressed with the company’s efforts to reduce debt and improve efficiency. Newmont reduced its net debt to $0.8 billion at the end of 2017. Since 2013, the company has been streamlining its balance sheet and has lowered its net debt by more than 83%.

Rising Production Costs Pose Headwind

Rising production cost is a concern for the company. Newmont’s all-in sustaining costs (AISC) rose 5% to $968 in last reported quarter, mainly due to higher per unit cost applicable to sales (CAS), higher exploration costs and increased sustaining capital. Increased project spending is expected to keep AISC at elevated levels moving ahead.

Newmont expects its AISC to be between $965 and $1,025 per ounce in 2018, higher than $924 recorded for full-year 2017.

Steel Dynamics has an expected long-term earnings growth rate of 12%. Its shares have soared 37.3% over the last six months.

Westlake Chemical has an expected long-term earnings growth rate of 12.2%. Its shares have moved up 53% over the past six months.

U.S. Steel has an expected long-term earnings growth rate of 8%. Its shares have rallied 65.2% over the last six months.

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